SAD refunds cannot be adjusted against non-final drawback demands; delayed refunds carry applicable interest.

M/s Johnson & Johnson P. Ltd. claimed refunds of Special Additional Duty (SAD) amounting to ₹14,28,537 and ₹3,67,588 in respect of imports covered by five and eight Bills of Entry, respectively.

Although the Assistant Commissioner sanctioned the refunds, the amounts were appropriated under Section 142(a) of the Customs Act, 1962, towards a drawback-recovery demand confirmed by an earlier Order dated 27 March 2018.

The Commissioner (Appeals) upheld the appropriation, leading to the present appeals.

During the proceedings, the Appellant produced a subsequent Order-in-Original dated 16 August 2024, passed pursuant to a remand by the Revisional Authority, whereby the drawback-recovery proceedings were dropped.

The Department’s status report dated 30 March 2026 confirmed that the drawback demand had been completely dropped, although the appropriated SAD refund had not been released.

Whether the sanctioned SAD refund could be appropriated under Section 142(a) of the Customs Act, 1962 towards a drawback-recovery demand that had not attained finality at the time of appropriation.

Whether, after the drawback demand was subsequently dropped, the Appellant was entitled to restoration of the appropriated refund with applicable interest.

Section 142(a) of the Customs Act, 1962 permits recovery of customs dues from money owing to the person liable, but such recovery cannot properly be made against an amount where the underlying demand has not attained finality.

The Tribunal relied on Voltas Ltd. v. Commissioner of Central Excise, Hyderabad-II, 2006 (201) E.L.T. 615 (Tri.-Bang.), which held that an adjudication order that remains appealable and sub judice cannot be treated as a final arrear for adjustment of refund; adjustment should be made only after the demand reaches finality.

The Tribunal also noted the principle stated in Commissioner of Central Excise, Bangalore-III v. Stella Rubber Works, 2011 (267) E.L.T. 495 (Kar.), concerning the impermissibility of adjusting refunds against non-final demands.

The Tribunal further recognised the entitlement to applicable statutory interest on delayed refund, referring to the principle reflected in Section 11BB of the Central Excise Act as applied in Voltas.

The Tribunal found that the refund had been appropriated against a drawback demand that was not final and was capable of being set aside in appellate or revisional proceedings.

Applying the principle in Voltas, it held that such a demand could not be treated as an enforceable arrear for the purpose of adjustment under Section 142(a).

The subsequent revisional proceedings confirmed the defect in the original recovery process, and the fresh Order-in-Original dated 16 August 2024 expressly dropped the drawback demand.

The Department’s own status report admitted that the demand had been completely dropped, thereby eliminating the basis for retaining the appropriated SAD refund.

The Tribunal therefore held that the Department ought to have released the amount suo motu and that the Appellant was entitled to the refund with applicable interest.

The Commissioner (Appeals)’s Order-in-Appeal dated 10 June 2022 was set aside.

The Respondent-Commissioner was directed to refund the amounts of ₹14,28,537 and ₹3,67,588 appropriated against the Appellant’s SAD refund claims, together with applicable interest in accordance with law, within two months from receipt of the Tribunal’s order.